Mandating Unemployment?

Here’s some economic logic to ponder. The unemployment rate in June for American teenagers was 24%, for black teens it was 38%, and even White House economists are predicting more job losses. So how about raising the cost of that teenage labor?

Sorry to say, but that’s precisely what will happen on July 24, when the minimum wage will increase to $7.25 an hour from $6.55. The national wage floor will have increased 41% since the three-step hike was approved by the Democratic Congress in May 2007. Then the economy was humming, with an overall jobless rate of 4.5% and many entry-level jobs paying more than the minimum. That’s a hard case to make now, with a 9.5% national jobless rate and thousands of employers facing razor-thin profit margins.

There’s been a long and spirited debate among economists about who gets hurt and who benefits when the minimum wage rises. But in a 2006 National Bureau of Economic Research paper, economists David Neumark of the University of California, Irvine, and William Wascher of the Federal Reserve Bank reviewed the voluminous literature over the past 30 years and came to two almost universally acknowledged conclusions.

Proponents argue that millions of workers will benefit from the bigger paychecks. But about two of every three full-time minimum-wage workers get a pay raise anyway within a year on the job. Meanwhile, those who lose their jobs or who never get a job in the first place get a minimum wage of $0.

The thing politicians never seem to understand is Newtons third law of motion, “Every action has an equal and opposite reaction”, applies as readily to economics as it does to physics… A 70 cent per hour increase in the wage will ultimately result in a loss of jobs for entry level workers. Neumark estimates that the coming minimum wage hike will kill “about 300,000 jobs for those between the ages of 16-24.”

As the journal notes when the economy was humming along and the unemployment rate was 4.5% no one would have batted an eyelash at this increase. But today in this economy is struggling with 9.5 % unemployment it’s a jobs killer… Businesses today are worrying about their long term survival and are trying to control costs as best they can. The simple reality is a minimum wage hike at this time is cost increase that already struggling business aren’t going to want to bear. Consequently they’re either going to reduce hours or cut jobs for entry level workers to keep their costs in line.

Congress needs to exercise a little commonsense and delay implementation of this minimum wage in crease until the economy recovers.